Harley-Davidson Financial AnalysisSteven Banek and Kathy Massey

Company BackgroundBackground

William Harley, William Davidson, Arthur Davidson, Walter Davidson

ProductsCEO Keith WandellPublicly Traded Data

Financial AnalysisBalance Sheet

Total Assets Increased by 3.9%, from $9.17 billion -$9.53 billionShareholders Equity increased by 13.75%, from $2.56 billion - $2.91 billion

Income StatementNet Income increased 35.37%, from $624 million -$845 millionGross Profit Margin increased by 13.9% Operating Profit Margin increased by 28.08%

Financial AnalysisLiquidity/Trend Analysis

Current Ratio declined from 2.70 to 1.65. Quick Ratio declined from .9 to .50Total Operating Cycle averaged 61 days

Profitability AnalysisNet Profit Margin increased 35.37%

Honda grew 271.47%, Yamaha 914%

Return on Assets decreased from 13.7% to 8.99%Return on Equity is 29.03%

All three companies increases ROE year-over-year

2012 2013 20140.00%

20.00%40.00%

ROE

Harley Yamaha Honda

Year

Retu

rn2012 2013 2014

0.00%5.00%

10.00%15.00%

Net Profit Margin

Harley Yamaha Honda

Year

%

Financial AnalysisLeverage Analysis

Debt Ratio is 69.47%, remaining fairly stable over three yearsDebt to Equity Ratio is well above 2.0

Yamaha and Honda consistently stay below 2.0

Times Interest Earned is 307.78, beginning 21.72 in 2012Interest Expense decreased dramatically in 2014

2012 2013 20140.001.002.003.00

Debt/Equity

Harley Yamaha HondaYear

Debt

/Equ

ity R

atio

2012 2013 20140.550.600.650.700.75

Debt Ratio

Harley Yamaha HondaYear

Debt

Rat

io

Financial AnalysisIndustry Comparison

Recreational Vehicle IndustryReturn on Equity is 28.80%, industry average is 29%P/E Ratio of $15.91, industry average is $18.60Dividend Yield is 1.78%, industry average is 1.68%Net Profit Margin is 13.56%, industry average is 9.4%

Financial AnalysisCapacity and Covenants:

The Harley Davidson Financial Services (HDFS) agreement provides a bailout by the parent company to keep a fixed-charge coverage ratio of 1.25 and $40mm of Net Income in HDFS. Regarding the financial and operational covenants, the parent company, Harley, has limited capacity to borrow funds. These limitations make the following restrictions, “assume or incur certain liens;participate in certain mergers, consolidations, liquidations or dissolutions; and purchase or hold margin stock.” In addition, they are required to have debt/equity ratio of 10.0 to 1.0 and debt ratio between .65 and 1.0 at quarter-end. The company has reported that they have complied with all covenant and capacity requirements.

The company has $3.7 billion in long-term debt with interest rates between 1.15% and 6.8%. In 2013, the rate was as high as 15% for senior unsecured notes, but has been paid-off.

Harley’s current debt ratio if .69 and their debt/equity ratio is 2.28 for 2014, staying within required financial covenants.

SWOT Analysis

Strengths:• Harley has 54.9% of the US

market share for the motorcycle industry, a 5% increase from prior year.

• Days sales in A/R is 14.5110.• The Times Interest Earned ratio

is 307.

Weaknesses• Harley had underfunded

pensions, $205.9 million, and postretirement healthcare, $218.6 million, in 2013.

• Harley’s quick ratio is .5071.• Harley’s Operating Asset ratio is

.6537.

Opportunities• Overtook Brazil and Japan as

first in market share. • Growth of finance and

insurance products. • Test of Electric Motorcycle.

Threats• Harley has floating interest. • The working capital of Harley is $1.5

billion while their competition is nearly 1/3 to 3 times higher.

• Harley has an opportunity to expand their businesses in Canada, Australia and Europe.

ConclusionLoan request for $1.5 billion

Moody’s, Standard and Poor’s and Fitch RatingTimes Interest Earned ratio is 307 Working Capital is $1.5 billionTreasury StockGrowth rate between 4-6% for 2015Debt Ratio Increase .69 to .85 It is recommended to…… GIVE THEM THE

REVOLVING LINE OF CREDIT